Latest news with #valuation
Yahoo
13 hours ago
- Business
- Yahoo
Is MONY Group plc (LON:MONY) Trading At A 40% Discount?
Using the 2 Stage Free Cash Flow to Equity, MONY Group fair value estimate is UK£3.46 MONY Group's UK£2.09 share price signals that it might be 40% undervalued Our fair value estimate is 35% higher than MONY Group's analyst price target of UK£2.56 Today we will run through one way of estimating the intrinsic value of MONY Group plc (LON:MONY) by projecting its future cash flows and then discounting them to today's value. This will be done using the Discounted Cash Flow (DCF) model. It may sound complicated, but actually it is quite simple! Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you. We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free. We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. To start off with, we need to estimate the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. Generally we assume that a dollar today is more valuable than a dollar in the future, so we need to discount the sum of these future cash flows to arrive at a present value estimate: 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Levered FCF (£, Millions) UK£97.4m UK£105.0m UK£107.4m UK£109.7m UK£112.2m UK£114.8m UK£117.6m UK£120.5m UK£123.5m UK£126.5m Growth Rate Estimate Source Analyst x2 Analyst x3 Analyst x2 Est @ 2.17% Est @ 2.28% Est @ 2.36% Est @ 2.41% Est @ 2.45% Est @ 2.48% Est @ 2.50% Present Value (£, Millions) Discounted @ 8.0% UK£90.2 UK£90.0 UK£85.2 UK£80.5 UK£76.3 UK£72.3 UK£68.5 UK£65.0 UK£61.6 UK£58.5 ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = UK£748m The second stage is also known as Terminal Value, this is the business's cash flow after the first stage. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.5%. We discount the terminal cash flows to today's value at a cost of equity of 8.0%. Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = UK£127m× (1 + 2.5%) ÷ (8.0%– 2.5%) = UK£2.4b Present Value of Terminal Value (PVTV)= TV / (1 + r)10= UK£2.4b÷ ( 1 + 8.0%)10= UK£1.1b The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is UK£1.8b. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Compared to the current share price of UK£2.1, the company appears quite good value at a 40% discount to where the stock price trades currently. Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind. The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows. If you don't agree with these result, have a go at the calculation yourself and play with the assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at MONY Group as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 8.0%, which is based on a levered beta of 1.069. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. See our latest analysis for MONY Group Strength Earnings growth over the past year exceeded the industry. Debt is not viewed as a risk. Dividends are covered by earnings and cash flows. Dividend is in the top 25% of dividend payers in the market. Weakness No major weaknesses identified for MONY. Opportunity Annual earnings are forecast to grow for the next 3 years. Good value based on P/E ratio and estimated fair value. Threat Annual earnings are forecast to grow slower than the British market. Valuation is only one side of the coin in terms of building your investment thesis, and it is only one of many factors that you need to assess for a company. It's not possible to obtain a foolproof valuation with a DCF model. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. Can we work out why the company is trading at a discount to intrinsic value? For MONY Group, there are three important aspects you should explore: Financial Health: Does MONY have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk. Future Earnings: How does MONY's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart. Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing! PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the LSE every day. If you want to find the calculation for other stocks just search here. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
16 hours ago
- Business
- Yahoo
Down 17% in a week and on a P/E of 10! Should I buy this dirt cheap value stock?
Chinese stocks are normally valued at a discount to their US peers, even if they're in hyper-growth mode. Take PDD Holdings (NASDAQ: PDD), which is a Chinese e-commerce company that trades at the sort of valuation you'd expect to see from a FTSE 100 value stock. The Temu owner grew its revenue and earnings by 59% and 78%, respectively, last year. Yet the stock has tumbled 17% in a week and now trades at a price-to-sales (P/S) ratio of 2.6 and a price-to-earnings (P/E) multiple of just 10.5. At first glance, this looks unjustifiably cheap. So, should I add this value stock to my portfolio? Let's find out. Firstly, it's worth pointing out why US-listed Chinese stocks trade at such a wide discount to American peers. It all boils down to regulatory risk, as China's tech companies can quickly fall foul of regulators and have them breathing down their necks for all sorts of reasons. For example, as well as its international Temu shopping platform, PDD operates Pinduoduo in China. It focuses on value-for-money merchandise and has a strong emphasis on agricultural products, directly connecting farmers with consumers. It has had great success taking market share from larger e-commerce rivals like Alibaba in recent years. However, President Xi Jinping wants more 'high-quality development' in the Chinese economy, with fewer counterfeit goods. In response to these concerns, Pinduoduo has initiated efforts to enhance product quality. Last year, PDD said it was 'prepared to accept short-term sacrifices' to 'vigorously support high-quality merchants'. I read this as a clear signal that the firm's profits were going to come down significantly. To be fair, management was honest about this, saying: 'In the long run, the decline in our profitability is inevitable'. Essentially, Chinese companies have to align themselves with what the government wants. And this often doesn't involve the maximisation of shareholder profits, which puts off a lot of investors. Hence why most Chinese stocks trade at cheap multiples. And geopolitical risk associated with US-China tensions only adds to the downwards pressure. But it's not all domestic issues, including weak Chinese consumer spending, for PDD. Temu's explosive growth has relied on shipping low-cost goods to US consumers directly from Chinese merchants. However, President Trump has abolished the de minimis tax exemption that encouraged this, as well as slapping sky-high tariffs on Chinese imports. In Q1, PDD's revenue grew just 10% to $13.2bn, a significant deceleration. Meanwhile, profits fell nearly 50% to $2bn! The risk here is that Temu users face paying far higher costs, which could undermine the platform's raison d'être (dirt cheap bargains). Instead of being able to 'shop like a billionaire', as Temu puts it, consumers might have to settle for shopping like a humble millionaire. Or not at all on the app. Given the significant challenges the company faces, I don't think the earnings figures can be relied upon. In other words, the P/E ratio of 10 might be misleading if growth decelerates and margins take a hit. If a US-China trade deal is struck, perhaps PDD's strong international growth might resume. But given the murky outlook, I'm going to focus on other growth stocks for my portfolio. The post Down 17% in a week and on a P/E of 10! Should I buy this dirt cheap value stock? appeared first on The Motley Fool UK. More reading 5 Stocks For Trying To Build Wealth After 50 One Top Growth Stock from the Motley Fool Ben McPoland has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors. Motley Fool UK 2025 Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
2 days ago
- Business
- Yahoo
Are Investors Undervaluing Novem Group S.A. (ETR:NVM) By 36%?
Using the 2 Stage Free Cash Flow to Equity, Novem Group fair value estimate is €6.91 Current share price of €4.45 suggests Novem Group is potentially 36% undervalued Novem Group's peers are currently trading at a premium of 202% on average In this article we are going to estimate the intrinsic value of Novem Group S.A. (ETR:NVM) by projecting its future cash flows and then discounting them to today's value. We will take advantage of the Discounted Cash Flow (DCF) model for this purpose. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow. Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality. We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. In the first stage we need to estimate the cash flows to the business over the next ten years. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we discount the value of these future cash flows to their estimated value in today's dollars: 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Levered FCF (€, Millions) €19.1m €20.5m €29.2m €25.5m €23.3m €22.0m €21.2m €20.7m €20.5m €20.4m Growth Rate Estimate Source Analyst x2 Analyst x2 Analyst x1 Est @ -12.80% Est @ -8.58% Est @ -5.63% Est @ -3.56% Est @ -2.11% Est @ -1.10% Est @ -0.39% Present Value (€, Millions) Discounted @ 7.9% €17.7 €17.6 €23.3 €18.8 €15.9 €13.9 €12.5 €11.3 €10.4 €9.6 ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = €151m We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (1.3%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 7.9%. Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = €20m× (1 + 1.3%) ÷ (7.9%– 1.3%) = €313m Present Value of Terminal Value (PVTV)= TV / (1 + r)10= €313m÷ ( 1 + 7.9%)10= €147m The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is €297m. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Relative to the current share price of €4.5, the company appears quite undervalued at a 36% discount to where the stock price trades currently. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out. We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Novem Group as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 7.9%, which is based on a levered beta of 1.527. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. See our latest analysis for Novem Group Strength No major strengths identified for NVM. Weakness Earnings declined over the past year. Interest payments on debt are not well covered. Opportunity Trading below our estimate of fair value by more than 20%. Threat Debt is not well covered by operating cash flow. Although the valuation of a company is important, it is only one of many factors that you need to assess for a company. DCF models are not the be-all and end-all of investment valuation. Rather it should be seen as a guide to "what assumptions need to be true for this stock to be under/overvalued?" For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result. Can we work out why the company is trading at a discount to intrinsic value? For Novem Group, we've put together three relevant elements you should consider: Risks: Every company has them, and we've spotted 2 warning signs for Novem Group (of which 1 is potentially serious!) you should know about. Future Earnings: How does NVM's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart. Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered! PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the XTRA every day. If you want to find the calculation for other stocks just search here. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Bloomberg
3 days ago
- Business
- Bloomberg
Delaware AG Seeking Bank to Advise on OpenAI Restructuring
Delaware's attorney general is planning to hire an investment bank that would advise her office as it examines OpenAI's restructuring plans aimed at drawing more investors, according to a person familiar with the matter. The bank would help Delaware Attorney General Kathy Jennings complete an independent valuation of OpenAI's assets to fulfill her responsibilities to review the restructuring plan, according to the Wall Street Journal, which reported earlier on the matter.
Bloomberg
3 days ago
- Business
- Bloomberg
Real Madrid's $7.1 Billion Valuation Stretches Away From Rivals
Real Madrid, whose revenues have been supercharged by the revamp of its Santiago Bernabéu stadium, has seen its valuation pull away from its major rivals. The Spanish club was worth €6.3 billion ($7.1 billion) as of January, a 23% year-on-year increase, Football Benchmark said in its latest annual report.
